Here’s a real plan to solve the economic crisis, for good.
What is the real worry about the banks right now? That they won’t be able to make loans and keep the money supply up. Well, there’s an easy solution.
Congress can simply authorize the president to print money based on nothing and then put that money into the economy. If congress puts the right amount of money in the economy, we don’t need banks to inflate our money supply. And I think after 80 years of experimentation, we have got the formula down pat for getting the money supply right, or close to right.
How does congress manage the money supply? By spending. If we need more money in the economy, congress authorizes more spending or lowers taxes or both. If we need less money in the economy, congress spends less or raises taxes or both. The spending deficit is simply how much more money is going into the economy each year.
And since money, especially in an expanding economy like ours, tends to increase in value with all things being equal, congress will have to spend a lot more than it takes in to make sure that the value of money just stays the same.
If congress spends too much money, we get inflation. The value of our currency declines. Money is too easy to come by, and the prices of goods and services start to go up. The response to this kind of problem is to raise taxes, thus removing money from the economy, or to slow spending. Since the people will be suffering from inflation, they will ask the congress to do one or both of these things.
If congress isn’t spending enough money, we get deflation. The value of our currency is increasing as prices are falling. People refuse to spend their money because if they wait a little longer they can buy more tomorrow. In order to fix this problem, congress needs to spend more or lower taxes. The people will be suffering in this scenario, and they will ask congress to do one or both of these things.
A happy equilibrium can be reached, and with low enough spending, we can have a functioning federal government without any tax revenue. That is, the total operation of the federal government can be funded only by the necessary increase of the money supply each year.
This would certainly be a boon to the people. Let me list the ways.
First, we would live in a society where we aren’t heavily burdened by taxes. What we earn is ours to keep and spend as we see fit. We can, as individuals, redirect the economic activities of our country as we see fit since we control where our money goes. We can even build up a savings account for retirement, or invest in our nation’s enterprises by buying stocks and bonds. Or we can spend our money on saving the environment or helping the poor and homeless.
I personally believe that if we didn’t have our taxes so high, we would be enormously productive. That is, our corporations would be posting insane profits, our employees would be making insane wages, and our prices for goods and services would drop to insane new lows. This is because of the natural tendencies of the American people to make money and be productive. There would be more money available to charities and environmental programs than there is today.
Second, we wouldn’t rely on a handful of powerful people to control our money supply. As it is now, we are trusting the chairman of the Fed and a few powerful CEOs to make sure that we have enough money to go around, and not too much. We have seen in the past how they have made mistakes or abused their power. I’d rather put that kind of awesome power in the hands of a government that is servant to the people.
Third, we wouldn’t live in a society that relied on debt to expand its money supply. Rather than living by taking out loans or using credit cards, the American people would have an incentive to live based on what’s in their bank accounts and thus accumulate real wealth. Banks would be incapable of loaning money out to anyone but the most trustworthy and for nothing but what we might consider a high rate today. The reason is because banks can’t use fractional reserves to loan out what they do not have. Debt simply isn’t a preferred option.
But don’t fear! There are really two sources of money when you don’t have any. One is to borrow, promising to pay in the future what you don’t have today. The other is profits, turning what you have into something that is more valuable than what it was. Since the first option is really deferred profits, or a promise to be profitable with some of those profits going to someone else, it is much better to live by the second method. If we encouraged people to produce now and consume later, they would live better, happier, more financially satisfying lives.
The beauty of this plan is that congress can say, today, “Let the banks fail because of their stupid investment choices.” Then, in the same breath, they can say, “Do not fear, there will be plenty of money coming, and it will be free money, free as in non-debt money, free as in liberty as in the people of America are free. We will start issuing that currency as the banks are incapable of doing it themselves, and we will do our best to make sure there is neither too much or too little.”
Of course, all the banks in the world will oppose this plan, and as in the past, will use nefarious tactics to try and keep Congress from issuing currency at a rate that will benefit the American people the most. But as the world’s sole superpower, we hardly have much to fear from the banks. If congress will simply issue enough currency, as much as the Fed would have, then we will be fine. If the banks try to inspire other countries to war, we can easily out finance them by issuing appropriate amounts of our own currency. This is because their currency comes at a the cost of two taxes: the interest rate which the country must pay to secure the loan, and the inflationary effects of introducing more money. Our money comes with only the inflationary, natural tax, and not the tax of interest.
Another beauty of this plan is that this is a plan that I believe democrats and republicans alike can get fully behind. We may disagree about how to spend the money, and how to tax the money, but we will agree on how much. We will agree that it is better to keep control of the money supply in the hands of the people rather than a few individuals and banks.
Perhaps under this system we will see the two parties align as an inflationary party and a deflationary party. One party will exhort raising spending and lowering taxes. The other will exhort reducing spending and raising taxes. When the people are suffering from deflation, the will elect the inflationary party. When they suffer from inflation, they will elect the deflationary party. Wouldn’t that be a nice political environment to have?